Super funds hit by January falls, but experts say stay the course
Sinking stockmarkets and property trusts – which make up about two-thirds of most people’s superannuation – have dented nest eggs, but experts have a clear message.
January’s painful sell-off in financial markets has slapped superannuation funds with their worst monthly returns since the start of the pandemic.
Many super savers lost more than $10,000 quickly as Aussie shares, overseas shares and property investments all fell sharply, while conservative investment options such as fixed interest and capital stable also went backwards.
A slight sharemarket rebound in late January restored some respectability, but super fund researchers estimate a minus-3 per cent return for a typical balanced fund for the month.
That translates to a loss of about $5300 for the average fund balance of $174,000 and almost $12,000 for older workers with larger average balances near $395,000.
People with high-growth or 100 per cent growth super options lost considerably more as Aussie shares sunk 8.3 per cent in January, US shares dropped 6 per cent, and real estate investment trusts tumbled more than 11 per cent.
Chant West senior investment research manager Mano Mohankumar said people who panicked and switched super to a safer option “not only lock in losses but you miss out on the potential rebound”.
“Never underestimate the importance of remaining patient, and the vast majority of members can afford to remain patient,” he said.
Mr Mohankumar said it was the biggest fall since the “Covid-induced market crisis in the early 2020s”.
“Those who remained patient were really rewarded from the end of March 2020 to the end of 2021 where we saw some exceptional returns,” he said.
SuperRatings executive director Kirby Rappell said since 2000 super fund returns had averaged 6 per cent annually, with only three negative years, “and in calendar year 2021 we had a return of 13.4 per cent”.
Mr Rappell said younger super savers with decades before retirement were usually better able to tolerate short-term volatility “even though they may not like it”.
He warned people to be cautious about trying to time the market by switching their super fund option to the safe haven of cash – which returned 0.1 per cent last year.
People who switched had to get it right both times, when selling and then when buying back in, Mr Rappell said.
“History suggests anyone who thinks they can time the market is probably making a pretty heroic assumption,” he said.
Sharemarket analysts expect increased volatility this year as the world adjusts to higher inflation and interest rates, but further weakness means peoples’ regular super contributions automatically get more bang for their buck.
Aware Super chief investment officer Damian Graham said financial markets tended to overreact.
“Superannuation is the ultimate long-term savings vehicle,” he said.
“If you continue to contribute through market volatility, the wealth effect can be strong in your portfolio.”
Mr Graham said people who had $100,000 in super at the start of 2020 and ignored the Covid collapse volatility would have ended 2020 with more than they started.
“If they moved to cash at the bottom of the market, they would have ended up with a 20 per cent lower portfolio value,” he said.
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